transactional leadership and job performance: an empirical

Volume: 2, No. 2 | October 2015

E-ISSN: 2410-1885; P - ISSN: 2313-1217 © 2015 Sukkur Institute of Business Administration – All rights reserved

74

Transactional Leadership and Job Performance: An Empirical

Investigation

Syed Mir Muhammad Shah 1 University Utara Malaysia and Sukkur Institute of Business Administration, Pakistan

Dr. Kamal Bin Ab. Hamid 2

University Utara Malaysia

Abstract

Present study investigates the relationship between transactional leadership and job

performance in the six large banks of Pakistan. The survey method was used to collect

data from the middle managers of six large banks of Pakistan. The data was analyzed

and reported using Smart-PLS and its standard reporting style. The findings of the

study reveal that transactional leadership has significant relationship with job

performance. The last part of the paper presents insights on future research.

Keywords: Transactional leadership; Job Performance; Banks; Pakistan.

1. Introduction Job performance has been reported as one of the important factors and significant

indicators of organizational performance but it has been conceptualized in different

ways (Organ, 1997). (Schmitt & Chan, 1998) had break up performance into “will do”

and “can do”. The concept will-do relates to knowledge, skill, ability, and other

distinctiveness which one individual needs to carry out a particular job. The can-do

creates inspiration for employees to perform the job. Whereas, (Jamal, 2007) defined

job performance as an individual’s function carrying out efficiently within the

prevailing constraints and the resources available. The meaning and scope of job

performance varies depending upon job to job. Some researchers including

(Campbell, 1990) have comprehended broader scope of performance which can be

generalized for various jobs. The scholars have pointed out job performance as a

multidimensional concept that consists of task and contextual elements of job

performance. However, job performance that contributes to organizational

effectiveness has been measured differently and literature reports numerous factors

influencing job performance.

Leadership is one of the factors that significantly contribute to job performance

(Vigoda-Gadot, 2007; Wang, Law, Hackett, Wang, & Chen, 2005). Furthermore, the

term leadership could be expressed in numerous ways and has been commonly

referred to as leadership style (Avolio, 1999). Prominent scholars have suggested

1 [email protected] 2 [email protected]

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mailto:[email protected]

ORIC

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https://doi.org/10.30537/sijmb.v2i2.94

https://doi.org/10.30537/sijmb.v2i2.94

Mir M. Shah & Kamal Bin. Hamid/ Transactional Leadership and Job Performance: An Empirical Investigation

SIJMB P - ISSN: 2313-1217 E-ISSN: 2410-1885 © 2015 Sukkur Institute of Business Administration V.2, No.2 | Oct 15

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many different leadership styles and transactional and transformational leadership

styles are the most popular among them (Bass, 1985). Particularly, transactional

leadership focuses on the achievement of the set goals (Bass, 1985). Additionally,

(Humphreys, 2001) explained that transactional leadership is characterized by a

reward system for their subordinates that motivate them to meet organizational goals.

Numerous studies suggest that transactional leadership has positive influence on job

performance; these studies have been looking into how transactional leadership

enhances job performance. Since organizations are unique in terms of their culture and

people, hence how do people react towards leadership decision making varies across

the globe. Particularly the focus of past studies have been dominantly on the job

performance of employees; however the present study aims to address the potential

influence of transactional leadership on job performance of the middle managers of

six large banks of Pakistan.

2. Literature Review

2.1. Job Performance

In the research domain of industrial and organizational psychology the job

performance has been considered as one of the most important construct (Borman,

2004; Borman & Motowidlo, 1997; Organ, 1997) In general job, performance refers

to effectiveness of individual behaviors that contribute to the organizational objectives

(McCloy, Campbell, & Cudeck, 1994).

Job performance is gauged usually in financial terms, but sometimes other factors are

also taken into consideration like task related aspects and expected behaviors, which

affect performance (Borman & Motowidlo, 1993; Britt & Jex, 2008). Job

performance consists of both monetary and non-monetary factors and these are linked

with organizational performance and success (Anitha, 2014).

The word "performance" highlights upon the concepts such as "attainment,"

"accomplishment," and "the execution of a task". Campbell introduced eight factors

related to job performance those are; a) job specific proficiency, b) non-job specific

task proficiency, c) effort to demonstrate, d) written and oral communication, e) to

maintain personal discipline, f) marinating team and peer performance, g) supervision

and leadership, h) administration and management. He further elaborated that all of

these factors are not relevant to all jobs and can be used to portray job performance

for any possible occupation. Moreover, all factors and content of factors varies from

job to job, primarily each factor is one of motivational elements. The study conducted

by (Hochwarter, Kiewitz, Gundlach, & Stoner, 2004) has further added social worth

towards all these factors. Studies report that job performance comprised two

dimensions; task performance and organizational citizenship behavior (Borman &

Motowidlo, 1997; Organ, 1988). The importance of task performance and OCB

performance is highlighted in the work of (Borman & Motowidlo, 1993; Motowidlo &

Van Scotter, 1994), according to which these dimensions of measuring job

performance play a critical role.



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According to (Motowidlo & Van Scotter, 1994) and (Campbell, 1990) model provide

a comprehensive explanation in terms of defining job performance by further breaking

it into task performance and OCB.

2.2. Transactional Leadership

The transactional leadership emphasizes on the need recognition of the followers and

it clarifies the ways in terms of how these needs are to be fulfilled with a mere

objective of enhancing job performance for attaining desired objectives. It is

comprised of contingent reward and management-by-exception (Bass & Avolio,

2000).This style of leadership is comprised of behavior of an exchange in between the

leader and follower, where rewards are always linked with the effort and output

produced by the subordinate (Burns, 1978). (Bass, 1985) has mentioned two types of

behaviors of transactional leadership styles; contingent reward and management by

exception. Contingent behavior is related to positive feedback by the supervisor. This

type of behavior is related to criticism and negative feedback by the leader subject to

unsatisfactory performance by the subordinate. The risk of punishment makes a

transactional conduct which differentiates this from "arbitrary and punitive behavior"

(Kohli, 1985).

Transactional leaders make their subordinates happy by rewarding them with the best

possible way of identifying their desires (Wegner, 2004). Transactional leader is

concerned with a stable environment and with less competition (Tichy & Devanna,

1986). According to (Zaleznik, 1977) transactional leaders are those who set goals for

their followers; allocate tasks and get the work done; finally reward those followers

who perform better and punish those who do not perform. In the organizational

behavior studies, they have widely used the type of transactional leadership style as

effective style which can motivate the followers to enhancing their inspiration to

achieve the objectives of the organization. (Burns, 1978) as a pioneer to the study on

transactional leadership pointed out those transactional leaders are motivating their

followers through appealing them to their self interests. The theories of transactional

leadership are based on the idea that leader-follower relationships are based on a

number of exchanges or implicit bargain between them. Transactional leadership is

characterized by behaviors and attitudes that emphasize the quality of exchanges

between superiors and subordinates. According to (Bass & Stogdill, 1990) the

achievement of tasks and goals are the responsibilities of the leaders who are the main

actors to motivate the followers in identifying the objectives and developing

confidence to meet the desired high performance levels.

2.3. Transactional Leadership and Job Performance

The relationship between leadership and job performance has received considerable

scholarly attention. Most of the studies on the relationship between transformational /

transactional leadership and job performance have yielded both significant as well as

insignificant results. According to (Bass, 1985), transactional, transformational, and

laissez-faire leadership style plays an important role in management. Additionally,

this study also reports a high correlation between job performance and transactional

leadership using Multifactor Leadership Questionnaire (MLQ).



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According to (McGrath & MacMillan, 2000), the effective leadership styles contribute

towards better performance in the times when new challenges are faced; this notion of

the positive relationship between transactional leadership and job performance is also

supported by (Gumusluoglu & Ilsev, 2009; Mahdinezhad, Suandi, bin Silong, &

Omar, 2013; Zhu, Chew, & Spangler, 2005). A strong relationship is evident in most

studies about the relationship between performance of the organization and its

managerial leadership. Leadership is critical at all levels in an organization. However,

the managerial level embraces high significance. In many organizations, it seems that

leadership is one of the most effective processes in influencing employees to drive

best out of them. (Rickards & Moger, 2006) stated that leaders of the organization

have the ability to educate as well as support their employees while challenging them

with creative and innovative work at the same time. Leaders hence, with their words,

actions and behavior encourage the employees to put extra effort to promote

achievement of set aim and goals. On the contrary, other studies report a negative

relationship between transactional leadership and job performance (Geyer & Steyrer,

1998; Lowe, Kroeck, & Sivasubramaniam, 1996; MacKenzie, Podsakoff, & Rich,

2001; Parry & Proctor-Thomson, 2002).

Hence the relationship between transactional leadership and job performance still

stands confusing and the results evident a mixed relationship between the two. The

present study, in the light of leader member exchange (LMX) theory (Graen, 1976),

aims at investigating the postulated relationship between transactional leadership and

job performance in the banking sector of Pakistan.

3. Methodology

3.1. Sample and Population

The Full time branch managers of six large banks of Pakistan were surveyed. For the

total population of 1314 (Pakistan Banks Association, 2014) branch managers all

around the province of Sindh a minimum of 302 (Krejcie & Morgan, 1970), responses

were required. Hence using proportionate random sampling a total of 500

questionnaires were mailed to the bank branches with self-addressed returned

envelops out of which 297 useable questionnaires were received.

3.2. Measures The job performance was measured using job performance scale developed by

(Williams & Anderson, 1991) with 37 items and Transactional leadership was

measured using Multifactor Leadership Questionnaire (MLQ) developed by (Bass &

Avolio, 2000) with 12 items.

Respondents were asked to self evaluate about perceived job performance and

transactional leadership style. The five point Likert scale with 1 indicating (strongly

disagree) and 5 as (strongly agree) was employed.

3.3. Demographic Profile of the respondents The majority of managers were fall in 31 to 40 years of age group with 39.1% and

lowest percent falls in 51 or above age group that is with 8.1 percent. The majority of



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the managers were male with 94.9% whereas females are 4.7% percentage only.

84.2% managers are married and 15.8% are unmarried. A larger portion of mangers

were graduates with 91.2%, undergraduate. The major two groups of the managers

have salaries PKR 40,000 or less with 21.5% and PKR 80,000 or above with 21.2%.

The detailed demographics of the respondents are given in the table 1 below:

Table 1: Demographic Profile of Respondents

Characteristics Frequency Percentage

Gender

Male 282 94.9

Female 14 4.7

Age

20-30 years 74 24.9

31-40 years 116 39.1

41-50 years 82 27.6

51 and above 24 8.1

Position

Branch Manager 155 52.2

Operations Manager 141 47.5

Experience

Less than five years 46 15.5

5 to less than 10 years 117 39.4

10 to Less than 15 49 16.5

15 to less than 20 32 10.8

20 to less than 25 17 5.7

25 to less than 30 15 5.1

30 and above 21 7.1

Qualification

Undergraduate 22 7.4

Graduate 271 91.2



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Post Graduate 4 1.3

Monthly Income

40K or less 64 21.5

41 to 50 K 56 18.9

51 to 60K 51 17.2

61 to 70K 33 11.1

71 to 80K 30 10.1

81 to above 63 21.2

Marital Status

Married 250 84.2

Unmarried 47 15.8

4. Analysis and Results

Before performing the analysis, the assumptions related to linearity, normality and

multi-co-linearity were assessed (Hair, Ringle, & Sarstedt, 2011; Tabachnick &

Fidell, 2001). After satisfying these assumptions, the partial least square (PLS) path

modeling (Wold, 1974, 1985) using Smart PLS 2.0 (Ringle, Wende, & Will, 2005).

4.1. Measurement Model Results The individual item reliability, internal consistency reliability and discriminant

validity were ensured for assessing the psychometric properties of the scales that have

been adopted in the present study. In order to determine individual item reliability the

outer loadings were used following on (Hair Jr, Hult, Ringle, & Sarstedt, 2013).

Table 2 a: Results of Measurement Model

Latent Variables Items Loadings AVE CR

Contingent Reward (CR) LS1 0.76434 0.619921 0.765223

LS31 0.809708

Management by Exception -Active LS22 0.824517 0.632942 0.774977



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(MBEA)

LS25 0.765543

Management by Exception –Passive

(MBEP)

LS10 0.815171 0.51476 0.807711

LS15 0.612149

LS18 0.723341

LS3 0.704689

Task-Performance JPTSK1 0.83753 0.568512 0.793924

JPTSK2 0.820655

JPTSK3 0.574981

Organizational Citizenship Behavior

(OCB)

JPOCB28 0.634294 0.507909 0.877523

JPOCB32 0.642152

JPOCB33 0.790144

JPOCB34 0.758635

JPOCB35 0.774777

JPOCB36 0.634145

JPOCB37 0.733758



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Table 2 b: Correlation and Discriminate Validity

1 2 3 4 5

CR 0.7873506

MBEA 0.190901 0.7955765

MBEP 0.056968 0.288594 0.7174678

OCB 0.284067 0.35446 0.185216 0.7126773

Task 0.279529 0.147699 0.011416 0.298467 0.7539973

Note: bold diagonal figures are the square root of AVE.

The items which consisted of 0.5 and above loadings were retained (Barclay, Higgins,

& Thompson, 1995; Chin, 1998). The loadings are presented in Table 1.Further, in

order to ascertain internal consistency reliability the composite reliability coefficient

were used which according to (Bagozzi & Yi, 1988) and (Hair et al., 2011) should be

at least 0.7 or above (refer table 1). Therefore, it can be said that the present study

meets the internal consistency reliability.

The average variance extracted (AVE) was used for determining discriminant validity

drawing on the suggestions of (Fornell & Bookstein, 1982). According to whom the

square root of AVE should be greater than the correlations among latent variables.

The results of discriminant validity are presented in Table 2.

4.2. Structure and Model Results

In order to assess the significance of the path coefficients the bootstrapping procedure

was used with 5000 bootstraps and 297 cases (Hair, Sarstedt, Ringle, & Mena, 2012).

The path coefficients are presented in Table 3 and Figure 1.

Table 3: Path Coefficients and Hypothesis testing

Hypothesis Relationship Beta SE t-

statistics

Decision

H1 Transactional ->

Job-

Performance

0.084075 0.044026 1.909667 Supported

Note: Transactional = Transactional Leadership



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Figure 1: Assessment of structure model

The relationship between transactional leadership and job performance is discussed in

Table 3. According to which the path coefficient from transactional leadership to job

performance is 0.08 (t-value = 1.90). Hence it suggests that there is a relationship

between transactional leadership and job performance. Table 4 presents the r-square

value of job performance which is 0.87. This informs us that the transactional

leadership explains 87 percent of the variance in the job performance.

Table 4: Variance Explained in the Endogenous Variable

Latent Variable Variance Explained

Job Performance 87%

5. Discussion, Recommendations and Conclusion The purpose of the present study was to assess the transactional leadership and job

performance relationship. The results of the study suggest that transactional leadership

has positive relationship with job performance. These results are also consistent with

the previous research (Dolatabadi & Safa, 2010; Mohammad Mosadegh Rad &

Hossein Yarmohammadian, 2006; Voon, Lo, Ngui, & Ayob, 2011).

In the light of Leader Member Exchange (LXM) theory (Graen, 1976), this study

provides empirical evidence that transactional leadership adds positively to the

increase of employees job performance. It posits that transactional leadership style is

perceived to be very critical factor that influences employee’s job performance. The

results of the present study suggest that leaders by adopting transactional style could

influence dramatically job performance of employees. Therefore, prominent leaders

should consider this style of management.

The present study addresses the examination of transactional leadership with job

performance among the branch managers of big six banks of Pakistan. Drawing upon

LXM theory the results suggest a positive association between the two. Hence it is

suggested to broaden the scope of this study into the other banks of the country to

better explain this relationship and collect further evidence to validate these results.



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Besides, only transactional leadership style was investigated under this study.

Therefore, it is also suggested to investigate the influence of other potential leadership

styles over job performance in this industry. This study might also have limitations

particularly due to its cross-sectional design. Further analysis on longitudinal basis is

suggested.

Although the present study has several limitations despite that it reports a positive

relationship between transactional leadership style and job performance. Thus, it can

be concluded that leaders opting transactional style can potentially contribute to the

employee’s job performance and ultimately increasing organizational effectiveness.

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transactional leadership and job performance: an empirical

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